Characteristics of a Corporation quiz #2 Flashcards
Characteristics of a Corporation quiz #2
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What is the main purpose of issuing dividends to stockholders?
To distribute a portion of the corporation's profits to its owners. What happens to a corporation if all its original owners sell their shares?
The corporation continues to exist, as ownership can change without affecting the entity. Why is the separation of ownership and management considered a double-edged sword?
It allows for professional management but reduces owners' direct control over operations. What is required for a corporation to legally exist?
Filing articles of incorporation and other required documents with the state and adopting bylaws. How do stockholders receive their proportionate share of dividends?
Dividends are paid based on the number of shares each stockholder owns relative to total shares outstanding. What is the effect of not exercising the preemptive right when new shares are issued?
The stockholder's ownership percentage in the corporation decreases. What is the main reason corporations are subject to double taxation?
Because both the corporation and its shareholders pay taxes on the same earnings—once as corporate income and again as dividends. What is the significance of the corporate charter?
The corporate charter is the legal document that establishes the corporation's existence. Who typically adopts the initial bylaws of a corporation?
The incorporators or the initial board of directors. What is the main function of the CEO in a corporation?
The CEO leads the management team and is responsible for overall corporate operations. How does the board of directors influence corporate policy?
By making major decisions and setting policies for the corporation's management to implement. What is the purpose of the preemptive right for stockholders?
To allow existing stockholders to maintain their ownership percentage when new shares are issued. How does a corporation's unlimited life benefit its operations?
It allows the corporation to continue operating regardless of changes in ownership. What is the main disadvantage of government regulation for corporations?
It increases the complexity and cost of compliance. How are corporate profits taxed under the double taxation system?
First as corporate income, then again as personal income when distributed as dividends. What is the main advantage of limited liability for shareholders?
Shareholders are protected from personal responsibility for the corporation's debts beyond their investment. What is the process for transferring ownership in a corporation?
Ownership is transferred by buying or selling shares of stock. What happens to a stockholder's voting power if they acquire more shares?
Their voting power increases, giving them more influence over corporate decisions. What is the main reason corporations are able to raise large amounts of capital?
Because they can issue shares to many investors, spreading ownership and risk. How does the preemptive right work in practice when new shares are issued?
Existing stockholders are given the first opportunity to buy a proportionate share of the new stock before it is offered to others. What is the effect of issuing new shares on the total number of shares outstanding?
The total number of shares outstanding increases, potentially diluting existing ownership percentages. What is the main purpose of the corporate structure with stockholders, board of directors, and management?
To separate ownership from management and establish a clear hierarchy of authority and responsibility. What is the role of vice presidents in a corporation's management structure?
Vice presidents oversee specific departments or functions under the direction of senior management. How does the existence of bylaws benefit a corporation?
Bylaws provide a framework for resolving internal disputes and guiding corporate governance. What is the main reason for the popularity of the corporate form of business organization?
It offers limited liability, easy transfer of ownership, and the ability to raise large amounts of capital. What is the impact of the separation of ownership and management on corporate governance?
It requires effective oversight by the board of directors to align management actions with owners' interests. What is the main function of the accounting officer in a corporation?
The accounting officer manages the corporation's accounting records and financial reporting. How does the corporate form facilitate investment by individuals who are not business experts?
Individuals can invest in corporations without needing to manage or understand the business, relying on professional managers.
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